Support for
Farmers'
Cooperatives
Developing a
typology of
cooperatives and
producer
organisations in
the EU
Jos Bijman
Markus Hanisch
The 2011-2012 project „Support for Farmers‘ Cooperatives (SFC)“ has been
commissioned and funded by the European Commission, DG Agriculture and Rural
Development.
Contract Number: 30-CE-0395921/00-42.
The SFC project is managed by Wageningen UR’s Agricultural Economics Research
Institute LEI and Wageningen University. Project managers: Krijn J. Poppe and Jos
Bijman.
Other members of the consortium are:
 Pellervo Economic Research PTT, Finland: Perttu Pyykkönen
 University of Helsinki, Finland: Petri Ollila
 Agricultural Economics Research Institute, Greece: Constantine Iliopoulos
 Justus Liebig University Giessen, Germany: Rainer Kühl
 Humboldt University Berlin, Germany: Konrad Hagedorn, Markus Hanisch and
Renate Judis
 HIVA Katholieke Universiteit Leuven, Belgium: Caroline Gijselinckx
 Rotterdam School of Management, Erasmus University, The Netherlands: George
Hendrikse and Tony Hak
How to cite this report:
Bijman, J., and M. Hanisch (2012). Support for Farmers’ Cooperatives; Developing a
typology of cooperatives and producer organisations in the EU. Wageningen:
Wageningen UR.
Disclaimer:
This study, financed by the European Commission, was carried out by a consortium under
the management of LEI Wageningen UR. The conclusions and recommendations presented
in this report are the sole responsibility of the research consortium and do not necessarily
reflect the opinion of the Commission or anticipate its future policies.
Support for Farmers' Cooperatives
Developing a typology of cooperatives
and producer organisations in the EU
Jos Bijman
Wageningen University, The Netherlands
Markus Hanisch
Humboldt-Universität zu Berlin, Germany
November 2012
Corresponding author:
Jos Bijman
Wageningen University
Management Studies Group
Hollandseweg 1
6707 JB Wageningen,
The Netherlands
E-mail: [email protected]
Preface and Acknowledgements
In order to foster the competitiveness of the food supply chain, the European Commission is
committed to promote and facilitate the restructuring and consolidation of the agricultural
sector by encouraging the creation of voluntary agricultural producer organisations. To support
the policy making process DG Agriculture and Rural Development has launched a large study,
“Support for Farmers’ Cooperatives (SFC)”, that will provide insights on successful cooperatives
and producer organisations as well as on effective support measures for these organisations.
These insights can be used by farmers themselves, in setting up and strengthening their
collective organisation, and by the European Commission in its effort to encourage the creation
of agricultural producer organisations in the EU.
Within the framework of the SFC project, this report on developing a typology of cooperatives
and producer organisations in the EU has been written.
In addition to this report, the SFC project has delivered 34 case study reports, 27 country
reports, 8 sector reports, 6 EU synthesis and comparative analysis reports, a report on cluster
analysis, a report on the development of agricultural cooperatives in other OECD countries, and
a final report.
Table of contents
1.
Introduction ...........................................................................................................................................................7
2.
Original assignment and proposed methodology ..................................................................................8
3.
Classifications and typologies found in the literature ..........................................................................9
3.1
Cooperative principles..................................................................................................................................9
3.2
Product and sector ...................................................................................................................................... 10
3.3
Functions and activities ............................................................................................................................ 10
3.4
Position in the food chain ......................................................................................................................... 11
3.5
Kind of members .......................................................................................................................................... 11
3.6
Geographical scope of the membership ............................................................................................. 12
3.7
Ownership / financial structure ............................................................................................................ 12
3.8
Corporate governance ............................................................................................................................... 14
3.9
Legal form ....................................................................................................................................................... 14
3.10
Strategy ............................................................................................................................................................ 15
3.11
The life cycle of a cooperative ................................................................................................................ 15
4.
Producer organisations in developing and transition countries .................................................. 16
5.
Classifications that will be used in collecting data on EU cooperatives/POs .......................... 19
References ...................................................................................................................................................................... 23
1.
Introduction
This working paper presents the results of our literature review on typologies and classifications
of cooperatives and producer organisations. The paper consists of three parts. Section 2 repeats
the text for the contract, on what the Commission asked and what we proposed as approach and
methods. Section 3 discusses the various typologies and classifications that can be found in the
literature on cooperatives. Section 4 discusses the literature on producer organisations, which
related mainly to developing countries. Finally, in Section 5 we present those classifications that
we think are appropriate to be used in the data gathering in the EU-27 Member States.
Most typologies found in the literature only cover formal cooperatives, that is, legal persons that
are registered as cooperatives. In the commissioned study we also will include producer
organisations (POs) and associations of producer organisations. There is, however, no specific
legislation on producer organisations like there is specific legislation on cooperatives. Producer
organisations can have different legal forms. Producer organisations can even be informal
organisations, but we do not include those in our study. Although many of the classifications and
typologies discussed below are taken from the literature on cooperatives, we will go beyond that
literature and include classifications on producer organisations.
Comment on the terms ‘typology’ and ‘classification’
Classifying is the act of arranging objects by group or class. Once classes have been defined, real
life objects can assigned to one or more of these classes. The purpose of classifying is to bring
order in a population of objects.
Classification and typology are sometimes used as synonyms. We, however, consider a typology
as a more complex system of classification. Typologies often use several classes to develop the
types. Also, typologies have more specific functions (such is in academic research or policy
making) than classifications.
On the use of the classifications
The classifications presented below will be used to describe cooperatives and POs in all 27
member states of the EU. The national expert in each EU Member State will classify the 30 to 40
individual cooperatives for which he/she is collecting detailed information. In addition, the NE
will describe the evolution of cooperatives in different sectors with these classifications in mind.
In addition, the national expert give a rough indication of the number of cooperatives in his/her
country that fall in the different categories.
In selecting those classifications of coops/POs to be used for this study, we use a number of
minimum requirements:
•
Cooperatives and POs in all 27 member states can be classified;
•
Cooperatives and POs in all sectors considered in the project (including cereals, sugar,
pig meat, sheep meat, fruit and vegetables, olive oil and table olives, dairy and wine
sectors) can be classified;
•
Not only primary organisations (which have farmers as members) are covered, but also
secondary organisations, such as cooperatives of cooperatives and associations of
producer organisations.
7
2.
Original assignment and proposed methodology
Assignment
This theme will develop a comprehensive description of the different types of cooperatives and
other forms of producer organisations and associations of producer organisations that exist in
the EU agricultural sectors. The specific activities to be considered in the classification will
include at least agricultural production and/or the marketing or processing of agricultural
products, the provision of inputs and services to farmers and the sharing of machinery. The
typology established under this theme will facilitate the analysis and comparison of data
between Member States and agricultural sectors. Additionally, the typology will be used to
facilitate the clustering (Theme 6) and thereafter the selection of the cases studies (Themes 7
and 8).
Our approach
Typologies can be made from different perspectives depending on their objective. Classical
typologies are based on the function of the cooperative (such as provision of inputs, provision of
credit, marketing, and processing) or on the type of product (dairy cooperative, fruit and
vegetables cooperative, olive oil cooperative, etc.). More recent classifications found in the
literature distinguish cooperatives on the basis of their ownership structure, corporate
governance model, and extent of vertical integration in the marketing channel. Other
characteristics of cooperatives that could be used to develop a comprehensive classification are
single purpose versus multipurpose cooperatives, primary versus secondary (or federated)
cooperatives, the life cycle stage of the cooperative, and the legal form of the cooperatives. The
legal form will also be considered, as it will affect incentives to join or leave the cooperative.
However, for some (EU) support measures, legal form is irrelevant. For instance, for the
producer organisations eligible for EU support under the CMO for fruits and vegetables any legal
form may be chosen (as long as a number of other structural requirements are met).
In our approach we will select or develop a number of typologies that will be used in collecting
and analysing data at sector, member state and EU level. Our study will use the three building
blocks (position in the food chain, internal governance and institutional environment) to build
or select appropriate typologies. The typologies will be used as classification schemes,
particularly in theme 3.
Methods
We have based our comprehensive description and classification scheme on the following
methodology:
•
•
•
A literature review that covers both the theoretical and empirical literature on different
conceptualizations and classifications of cooperatives (including producer associations,
producer organisations, producer groups, etc.).
Analytic narratives based on interviews with international experts on cooperatives and
producer organisations.
An assessment of the usefulness of different typologies for our empirical research
8
3.
Classifications and typologies found in the literature
3.1
Cooperative principles
Cooperatives can be classified on the basis of the principles they support and follow. Barton
(1989) distinguishes between four classes of principles of cooperatives: Rochdale, Traditional,
Proportional, and Contemporary.1 These principles differ particularly on the business
organisational variables of control, ownership and distribution of benefit.
The Rochdale principles are perhaps the most well known:
1. Voting is my members on democratic basis (one-member-one-vote);
2. Membership is open;
3. Equity is provided by patrons;
4. Equity ownership is share of individual patrons is limited;
5. Net income is distributed to patrons as patronage refunds on a cost basis;
6. Dividend on equity capital is limited;
7. Exchange of good and services at market prices.
The list of Traditional principles slightly deviates from the Rochdale principles:
4. Ownership of voting stock is limited
7. Business is done primarily with member-patrons
However, Barton states that principles 2 (open membership), 4 (limitation on voting stock), and
7 (doing business primarily with member-patrons) are not universally listed as traditional
principles, although most cooperatives follow them. A well known list of traditional principles is
the ICA list of cooperative principles.2 This ICA list, however, goes beyond the business
organisational variables discussed above. It also pays attention to the broader societal role and
position of the cooperatives. For instance, the ICA principles promote cooperation among
cooperatives, and care for community.
The Proportional principles are based on a narrower, more specific definition of a cooperative as
a strictly proportional enterprise with respect to voting power, equity ownership investments,
and profit distribution. The key proportional principles are:
1. Voting is by members in proportion to patronage;
2. Equity is provided by patrons in proportion to patronage;
3. Net income is distributed to patrons as patronage refunds on a cost basis.
The Contemporary principles, based on Dunn (1988) are simple, flexible and few in number.
They avoid including specific points some people may consider policies or practices. As the same
time they encompass a latitude of practices such as open or closed membership and one vote per
member or proportional voting. The three principles are:
1. Voting is by member-users on a democratic or proportional basis;
2. Equity is provided by member-users;
3. Net income is distributed to member-users as patronage refunds on a cost basis.
These principles can be found in the following business practice. Members typically control
cooperatives by one-member-one-vote, but voting may be proportional to patronage or to equity
1
2
Please note that contemporary here means 1989.
ICA – International Cooperative Alliance (see: www.ica.coop).
9
investment. Ownership of cooperatives is created by direct investments, retained patronage
refunds, and per-unit capital retains. Benefits are reflected by returning net income to patrons in
proportion of use, by favourable prices, and by gaining access to market, supplies, and services.
3.2
Product and sector
Classifications on cooperatives usually do not distinguish among sectors and products. This is
quite understandable, as the sector or product does not necessarily lead to a different type of
cooperatives. Distinguishing between sectors, however, can be relevant for understanding
cooperative structure and behaviour. For instance, perishable products need either some kind of
processing before they will sold, such as in the case of milk, or they need to be delivered to final
consumer very rapidly, such as in the case of fresh vegetables. Thus, dairy cooperatives usually
are involved in processing, which has implications for capital requirements, while fresh produce
cooperatives are focussing much more on efficient logistics. Another relevant issue related to
sectors and products is the number of products the cooperative handles. Cooperatives can
specialize in handling one product, or can handle various agricultural products. The extent of
specialization is often related to sector characteristics (such as specialized farms), but could also
be a cultural and historical phenomenon. For instance, dairy cooperatives are generally more
specialized than cereal cooperatives, but cooperatives in Northwest Europe are usually more
specialized than cooperatives in Southern Europe. Cooperatives handling multiple products are
often called multiproduct or multisector cooperatives.
3.3
Functions and activities
A classification found in many publications is the one on the main functions or activities of the
cooperative (Helm, 1968; Cropp and Ingalsbe, 1989; Plunkett and Kingswell, 2001. The
following types of cooperatives have been distinguished:











Joint production (production cooperative)
Joint nature conservation (environmental cooperative)
Providing farm inputs (supply cooperative)
Providing credit (credit cooperative)
Providing insurance (insurance cooperative)
Providing farm machinery services (machinery cooperative)
Providing temporary labour (farm help cooperatives)
Providing starting material (plant or animal breeding cooperative)
Providing water (irrigation cooperative)
Processing farm products (processing cooperative)
Marketing farmer products (marketing cooperative)
Within this list of activities that cooperative could perform, we could may a core distinction
among three types of cooperatives. The first type consists of cooperatives that directly engage in
farming activities, like in the case of joint production and joint nature conservation. The second
type consists of cooperatives that provide all kinds of goods and services to the farmers.
Production of these services involves substantial economies of scale and scope. The third type
consists of cooperatives that have taken over the sales activities of the farmer. By delegating the
processing and marketing of the farm products to the joint organisation, farmers can specialize
in on-farm activities.
For production cooperatives, Helm (1968) has made the following subcategories:



joint ownership
joint planning
joint organising
10



3.4
joint cultivating
joint harvesting
joint animal husbandry
Position in the food chain
For marketing cooperatives, we can make a further distinction depending on the position in the
food chain that the cooperative is taking up. In marketing farm products, the cooperative may
choose from a range of ‘marketing’ activities, which ranges from just providing a market place,
like auction do, to large scale selling of final products to consumers. In between, there are
different positions in the food chain that the cooperative may hold. We distinguish the following
‘marketing’ activities which more or less correspondent with a particular position in the food
chain:
 providing a market (e.g. auction cooperative)
 collective bargaining (e.g. bargaining association)
 collecting farm products (including transport and storage)
 primary processing (producing intermediary products for the food industry)
 secondary processing (producing final consumer products)
 marketing commodities (bulk products; private label products)
 marketing branded products
 wholesaling (this implies the coop is selling member products and other products, in
order to supply a full assortment to the retail)
 retailing (i.e. directly selling to consumers)
A typology of cooperatives that based on the position in the food chain (or the scope of vertical
integration in the food chain) is presented by Nilsson (2001), who distinguishes between (a) the
countervailing power cooperative model or traditional model, (b) the entrepreneurial
cooperative model or new generation farmer cooperative model. The entrepreneurial
cooperatives tend to go further into value-added products, and hence to expend business
operations downstream the food chain, to invest in product and market development.
Kyriakopoulos et al. (2004) present the same dichotomy, distinguishing between productionoriented cooperatives and market-oriented cooperatives.
Classifying cooperatives according to position in the food chain is important for a number of
reasons. First, the position may have implications for the financial structure of the cooperative
(more specifically for the equity capital needed). Cooperatives selling (branded) consumer
products generally need more equity capital than the ones that limit themselves to primary
processing. Second, there is a relationship between position in the food chain and economies of
scale. Cooperatives that only have activities very close to the farmer, such as bargaining and
primary processing, generally put more emphasis on economies of scale. Third, the internal
governance may be related to position in the food chain. Cooperatives operating very close to
the final consumer are more likely to hire professional (marketing) managers. Finally,
cooperatives that have a wholesale function are more likely to have a high share of non-member
patronage.
3.5
Kind of members
Cooperatives can be classified on the basis of the kind of members, distinguishing between
primary cooperatives that have farmers as their members, and secondary or federated
cooperatives that have primary cooperatives as their members (e.g. Sögaard, 1994; Bijman,
Chaddad and Cook, 2004).
11
Where primary cooperatives are often small, secondary cooperatives are often much larger,
taking care of the marketing outside of the communities of the primary cooperative. History has
shown that when primary cooperatives grow often the secondary cooperatives disappear, for
instance my merging primary and secondary cooperatives. Secondary cooperatives are more
likely to combine economic functions with lobbying functions.
In the European fresh fruits and vegetables industry associations of POs (so-called APOs) are
newly appearing. The development of POs jointly establishing APOs is supported by the EU, as
many POs are too small to pose any countervailing power vis-a-vis large retailers.
3.6
Geographical scope of the membership
Cropp and Ingalsbe (1989) has also made a classification on the basis of the geographical area
serviced, thus the area in which the members of the cooperative reside. The authors distinguish
among the following classes:





Local (e.g. municipality)
Regional (e.g. Province, State or Department)
Interregional
National
Transnational
Local cooperatives always have farmers as their members, Regional, interregional and national
cooperatives can have direct farmer membership – depending on the size of the country – or can
be so-called federated cooperatives (see below).
3.7
Ownership / financial structure
Ownership structure and financial structure are closely related. We have defined a cooperative
and POs as an organisation in which the members provide the equity capital, thus the members
are the owners. In situations where the cooperative enterprise needs more capital, several
options are available, potentially leading to a partial change in ownership structure.
Well known classification of ownership/financial structure have been developed by Nilsson
(1999) and Chaddad and Cook (2004). All around the world, cooperatives are introducing new
financial tools in order to attract additional equity capital. Often these tools imply changes in the
ownership structure of the cooperative or its subsidiaries. Therefore, financial and ownership
structure are usually considered as the two sides of the same coin. Attracting additional risk
capital may be needed for international expansion, investments in R&D, as well as investments
in risky marketing activities like building consumer brands.
Nilsson (1999) distinguishes among five models of financial structure of the cooperative (Table
1). The main distinction among these five models pertains to ownership rights, where owners
are the actors that provide equity (or risk) capital to the cooperative. Ownership rights can be
collective or individual and can be held only by members or by members and external investors.
Model 1 is called the “traditional cooperative”; only members invest in the cooperative and all
equity capital is collective. This means there are not individual ownership titles, and the
investment will be returned to the members in case they exit the cooperative. Model 2, the
“participation share cooperative”, has partly individualised its equity capital; members may also
become individual shareholders in the cooperative and these shares can be traded at an internal
share market. Model 3 is the “cooperative with subsidiaries” in which outside investors
participate. Equity capital is partly collective, partly individual, and both members and outsiders
own shares in the subsidiary. Model 4 is the “cooperative with proportional tradable shares”. In
12
the United States this is called the new generation cooperative. Only members are shareholders,
and all equity capital is individually owned. Finally, Model 5, the “PLC cooperative”, is listed at a
stock exchange, and outsiders may own and trade the common stock. Nilsson has called models
2 to 5 entrepreneurial models, because only when the cooperative seeks to become (more)
entrepreneurial it feels the need to restructure its financial basis. It is assumed that both by
individualizing equity capital and by letting non-members invest, the cooperative is able to
attract the necessary capital for its entrepreneurial activities.
Table 1. Financial structures of cooperatives
Type of Equity Capital
1. Traditional cooperative
2. Participation share
cooperative
3. Cooperative with
subsidiaries
4. Proportional tradable share
cooperative
5. PLC cooperative
Providers of Equity
Capital
NonMembers
members
X
X
Collective
Individual
X
X
X
X
X
X
X
X
X
X
X
X
Source: Nilsson, 1999.
Chaddad and Cook (2004) have also used an ownership perspective in their typology of
cooperative organisational models. This typology is based on the experiences among
cooperatives in North America. The authors define ownership as the combination of residual
control rights and residual claim rights. They distinguish seven discrete ownership models,
ranging from the traditional cooperative at one extreme to the investor-owned firm (IOF) at the
other. In between are five models that discriminatively combine the ownership structure of
traditional cooperatives, where member/users have full residual control and claim rights, with
those of investor-owned firms, where investors hold all ownership rights. Leaving aside the IOF,
the six alternative cooperative models are characterized on the following variables: investment
restricted to members or also open for non-members; redeemable versus non-redeemable but
tradable rights; benefits to patronizing members or also to non-patronizing but investing
members; member investment proportional to patronage or non-proportional; and finally, when
outsiders are investing, do they do so in the cooperative itself or in subsidiaries of the
cooperative. Chaddad and Cook emphasise that the five non-traditional models can be used by
cooperatives to ameliorate perceived financial constraints while retaining a cooperative
structure.
The cooperative with a subsidiary in which outside investors can participate (Nilsson’s Model 3)
has been quite popular in several European countries. Eventually, this process of inviting outside
investors may result in the subsidiary becoming listed on the stock market. The latter model has
been named the Coop-Plc model (by Harte, 1997) or the Irish Model (by Chaddad and Cook,
2004). While most of the activities and assets are transferred from the cooperative to the Plcfirm, the cooperative remains in place as a holding organisation, representing the interests of the
members. Although the cooperative initially is the majority shareholder, it may eventually
become a minority shareholder when the public listed subsidiary is issuing new shares (Bekkum
and Bijman, 2007). Examples of this Irish model of cooperative ownership/financial structure
are:
•
•
the dairy cooperative Kerry (which became stock listed in 1986);
the supply cooperative IAWS (1988);
13
•
•
the dairy cooperatives Avonmore and Waterford (1989); they merged and became
Glanbia in 1997); and
the dairy cooperative Golden Vale (1989; acquired by Kerry in 2001).
3.8
Corporate governance
Bijman et al. (2012) have developed a classification based on corporate governance of the
cooperative. On the basis of empirical research in The Netherlands, they distinguish among the
following cooperative corporate governance models.
•
The traditional model, in which members directly elect the Board of Directors (BoD),
which consist entirely of farmer-members, and the BoD appoints and controls the
management of the cooperative firm;
•
The management model, in which the professional manager is the BoD of the
cooperative. As the management consists of external professionals, this model implies
that the BoD no longer consists of members of the cooperative. The Supervisory
Committee is often replaced by the – legally required – Board of Commissioners (BoC),
while the main tasks of the General Assembly have been taking over by a Member
Council.
•
The corporation model, in which the BoD of the cooperative forms a personal union with
the (mandatory) Board of Commissioners of the firm. While the BoD can (but does not
have to) consist of only members of the cooperative, the BoC also comprises a number
external experts. This model implies that there is not a separate supervisory committee
at the level of the cooperative association.
This classification implies an assumed shift of authority (or power) from the farmers to the
professional managers. This shift is often suggested as necessary for strengthening the market
orientation of cooperatives, as it gives manager more freedom to operate. However, the shift
may lead to reduced member commitment or member alienation.
As the cooperative firm becomes larger, more international, and more market oriented, the
relationship between the board of directors and professional management changes. The agency
problem (i.e. how owners make sure that managers take decisions that are in the interest of the
owners) becomes more serious as the size and complexity of the cooperative increases (Cook,
1995). Although the formal structure of the cooperative still gives the board of directors the final
authority, in large, market-oriented cooperatives, the managers have an information advantage
that makes it difficult for the board to control the managers.
3.9
Legal form
Cooperatives may have many different legal forms. A classification based on legal form is the
following:
•
•
•
•
•
•
association
cooperative
partnership
limited liability company (Ltd, BV, SARL., GmbH, SL, etc.)
corporation (Plc., NV, AG, SA, etc.)
informal producer group
The legal form of the cooperative/PO can differ substantially according to differences in national
legislation. In addition, producer organisations under the CMO regulation for fruits and
14
vegetables may take up any legal form. Still, from a policy-making perspective it is important to
know for each country and each sector what is the dominant legal form. Also, from an EU
perspective, it is interesting to know whether there are substantial differences among member
states in the dominant legal form for coops/POs.
3.10 Strategy
Many recent publications with classifications or typologies of cooperatives have focussed on the
different strategies the cooperatives may follow (Kyriakopoulos, 1998; Van Bekkum and Nilsson,
2000; Van Bekkum, 2001; Karlson, 2005). Most of these publications distinguish between
production-orientation versus market-orientation, traditional versus entrepreneurial, and cost
leadership versus differentiation. Many of the authors make link, in their discussion on the
(marketing) strategy of the cooperatives, with the position of the cooperative in the food chain
and with the capital structure of the cooperative. For instance, Van Bekkum (2001) distinguishes
cooperatives on two strategic dimensions: extent of product differentiation and extent of cost
leadership. In addition, he separates cooperatives on one element of organisational structure:
the extent of individualized equity capital. These three scales result in a typology of cooperative
models, which has been pictured by Van Bekkum in a three-dimensional figure. This cooperative
models cube identifies pure forms of four cooperative models:
a)
b)
c)
d)
the village cooperative model, related to small, local-oriented and collectively structured
cooperatives with limited specific product requirements;
the commodity cooperative model, related to large, collectively structured cooperatives
with a strong market position in undifferentiated commodity markets;
the niche cooperative model, related to small, individualised cooperatives focussed on
market niches;
the value-added cooperative model, related to the highly individualised, large
cooperatives focussed on highly differentiated products.
3.11 The life cycle of a cooperative
Not exactly containing classifications, but certainly interesting from a perspective of position in
the food chain and internal governance is the literature on the life cycle of the cooperatives.
Murray (1983) argued that over time cooperatively owned organisations become more akin to
conventional IOFs as organisational goals and performance become oriented away from the
aspirations of farmers and towards the goals of managers, as reflected in organisational and
financial structures, trading practices, functions and trading area. Cook (1995) identified five
hypothetical life cycle stages. Moving along these stages, cooperatives would reappraise their
organizational structure and their equity base, possibly at the expense of member participation
and user-based rewards, eventually resulting in cooperatives that very much become akin to
investor-owned firms (IOFs). Hind (1997) found that organizational focus of cooperative
businesses change over time. She found a positive relationship between business age and
increasing corporate, as opposed to member, orientation. This study of Hind was based on text
analysis of annual reports of several UK agricultural cooperatives. Hind (1999), in a study of ten
business cases, found that over time cooperative businesses tend to become more corporate
focuses as managers seek to covertly accumulate capital to allow conventional business
objectives to be followed. The evidence from those case studies also suggest that as and
organisation develops and grows, the ethics of the “organisational people” as opposed to those
of the “cooperative enthusiasts” seem to become increasingly the parameters with which
business objectives and strategy are determined.
15
4.
Producer organisations in developing and transition countries
Typologies and classifications of Producer Organisations (POs) are scarce. The term ‘Producer
Organisation’ is mostly used in the development literature, where it refers to a broad range of
rather different organisations of agricultural producers.
Producers are farmers, i.e. producers of agricultural products. Producer organisations (POs) are
organisations set up for and by farmers. Different names are used for the same or similar types
of organization, such as farmer organization (Stockbridge et al. 2003), rural producer
organization (Bosc et al. 2001), agricultural producer organization (Rondot and Collion 2001),
agricultural cooperative (Hussi et al. 1993), farmer association (Shen et al. 2005), farmer
organization (Wennink et al., 2007), producer group (Banaszak 2008), producer association
(Fulton 2005), producer organisation (World Bank, 2007; Ton et al., 2007), and collaborative
marketing groups (King and DiGiacomo, n.d.).
One of the most extensive overviews of different types of POs in developing countries is
presented by Onumah et al. (2007). Besides providing a short history of POs (mainly
cooperatives) in developing countries, the authors present six types of what they call postliberalisation POs. The authors have adopted the definition of POs as developed by the former
International Federation of Agricultural Producers (IFAP) as including cooperatives, producer
associations and other forms of economic structures. The main distinguishing characteristics in
this typology seems to be the main functions of the organisation as well as the initiators or main
drivers of the organisation.
•
Extension or commodity POs (out-growers): These are self-selected groups of farmers
producing the same crop, in the same geographic area, who joint together to share
labour or receive extension services. Typically these groups are not formally organized
or registered, but may have a leadership structure. Ten to 30 members is a typical size,
but this varies depending on the crop. Some extension groups are linked to a specific
company or commodity, in what is called an “out-grower scheme”.
•
Farmers’ association: This is a self-selected group of farmers, who engage in collective
business activities. Most commonly, the businesses involve collective marketing, where
larger volumes of a given crop are easier to sell and/or attract higher prices. Farmers’
associations typically have ten to thirty members, usually from the same village. They
may be formally registered or not, and usually have a leadership structure and
constitution.
•
Donor and NGO-promoted POs: Many POs working at the grassroots level with a direct
objective of improving farmers’ welfare are initiated or least substantially funded by
NGOs and donors. These organisations tend to be registered as associations. POs
promoted by NGOs and donor-funded projects tend to be acutely dependent on the
promoters and therefore their sustainability is often a major concern.
•
Market relations and embedded services for POs: These are private-sector-promoted
POs with functions that include input/credit delivery, extension services and bulking for
delivery to private promoter organizations and companies. With this category fall
outgrower groups established by the purchasing company. The difference with the first
type is that the initiative here lies with the company and not with the farmers.
•
Remnants of the cooperatives: Some of the old primary cooperatives (or cooperative
societies) have managed to survive in countries partly through entering into long-term
16
marketing relations with agribusiness or securing access to lucrative markets for
members. Thus there function has become direct marketing rather than trading produce
through the cooperative union as occurred in the past.
•
National and regional federations of producer organizations: These are umbrella
organisations of local and regional POs, typically engaged in lobbying and advocacy.
Examples given by Onumah et al. (2007: 18) are the Uganda Cooperative Alliance, the
Zambia National Farmers Union and the Kenya National Federation of Agricultural
Producers. These POs often receive significant support from donors and tend to work
closely with governments.
Traxler and Unger (2004) suggest to make a distinction between POs that have primarily an
economic function and those that have primarily a political function. The authors also suggest to
make a subdivision among economic producer organizations. One category includes those
organizations that have integrated forward into the value chain by processing and/or marketing
farm products, or that have integrated backwards by purchasing and/or producing farm inputs.
Typical examples are dairy processing cooperatives and compound feed cooperatives. The other
category consists of organizations that centralize and coordinate the selling of farm products. A
typical example is the bargaining association in the fresh produce industry (Hueth and Marcoul
2003). Whereas POs in the first category purchase the product from the farmer, the bargaining
association usually does not take ownership of the product, but only facilitates the sales process.
Penrose-Buckley (2007) presents a definition of a PO with a clear demarcation to economic
functions: a producer organisation is a rural business, owned and controlled by producers, and
engaged in collective marketing activities.
The focus in this definition on marketing as the main function of the PO is in line with most of
the recent development literature that is analysing the role of POs in value chains or supply
chains (e.g. Bijman and Wollni, 2009; Hellin et al., 2009; Markelova et al., 2009 ). Although POs
can also be engaged in collective production, processing, purchasing farm inputs, providing
technical assistance, obtaining subsidies, and even lobbying policy makers, the core activity that
all POs have in common is that they collectively market their members’ products.
This definition implies that village or community-based organisations are not POs. Village and
community organisations are primarily a means to channel resources to a community or to
mobilize community activities. Still, POs may pursue social objectives through the provision of
social services to their members and the wider community. The bottom line, however, is that
POs cannot be led by social objectives. If social objectives are placed before business priorities,
the business is likely to fail and no one will receive either economic or social benefits.
The term “producer organisation” can be considered an umbrella concept for any economic
organisation of agricultural producers that complies with the above definition of being a rural
business, being producer-owned and producer controlled, and being primarily a collective
marketing organisation.
Penrose-Buckley (2007) presents the following classification as to organisational form of the
(economic) producer organisation:
•
•
•
•
•
•
informal organizations
associations
cooperatives
private companies
multi-level structures
mixed structures.
17
Our short inventory of the structures and role of POs in developing countries shows that much of
the literature does not clearly distinguish between economic, social and political functions of
POs, that POs can have different legal forms or even remain informal organisations, that POs can
be part of a multilayer system, and that the initiative to set up a PO can come from different
stakeholders.
Classifications of POs in the development literature focus on the following characteristics:
•
•
•
•
•
who takes the initiative for establishing the PO: governments, NGOs, agribusiness
companies or farmers;
what legal form does the PO take: informal, association, private company, cooperative, or
mixed structure;
what are the functions of the PO: social, economic and/or political;
what is the level of the PO in the multilayer system: primary cooperative, cooperative
union, cooperative federation, cooperative confederation;
in case of economic function, what is the position in the food chain: only bargaining, or
processing and marketing the farm products (bargaining association versus
marketing/processing cooperative).
18
5.
Classifications that will be used in collecting data on EU
cooperatives/POs
From the many classifications and typologies discussed above, we suggest to use the following
classifications in describing the types of cooperatives/POs that exist in the various Member
States of the EU. We call these classifications and not typologies, in order to keep it as simple as
possible for data collection purposes. Later, on the basis of the information gathered in the EU27 Member States, we will develop typologies that include combinations of classification.
1. A classification based on the sector(s) in which the cooperative/PO operates (or the
main products it is handling):
•
•
•
•
•
•
•
•
Cereals
Sugar
Pig meat
Sheep meat
Fruits and vegetables
Olive oil and table olives
Dairy
Wine
Besides that we need to study cooperatives in the top 8 of the above list of sectors, as indicated
by the Commission and which are relevant from a sectoral policy perspective, we also want to
know their main products because the type of product has implications for the activities and
thereby the organisation of the cooperative. Perishable products are more likely to be handled
by cooperatives than non-perishable products, because of the dependency of farmers on the
processing/marketing firm, but milk is more likely to be handled by cooperatives than fresh
fruits because of the economies of scale involved in milk processing.
2. A classification based on the main functions of the cooperative/PO:
•
•
•
•
•
•
•
•
•
•
•
Joint production (production cooperative)
Joint nature conservation (environmental cooperative)
Providing farm inputs (supply cooperative)
Providing credit (credit cooperative)
Providing insurance (insurance cooperative)
Providing farm machinery services (machinery cooperative)
Providing temporary labour (farm help cooperatives)
Providing starting material (plant or animal breeding cooperative)
Providing water (irrigation cooperative)
Processing farm products (processing cooperative)
Marketing farmer products (marketing cooperative)
In our project the emphasis is on marketing cooperatives / POs and on food products. For the
description of cooperatives in particular countries we use a classification that includes other
cooperatives, to get a good overview of the importance of cooperatives in the agricultural
industry in that country. Also, there may be many links between marketing and other
cooperatives (for instance, a supply cooperative may have an agreement with a marketing
cooperative to provide particular inputs to the farmers that are members of both coops).
19
3. A classification on diversity of functions and products
In addition to economic functions (providing services that support farmers in their on-farm
economic activities), cooperatives/POs may also have social and political functions. Particularly
those cooperatives strongly embedded in rural communities often provide social services for the
members of the community. Thus, we will also describe whether and which cooperatives have
social and other functions. These cooperative with non-economic functions are called
multipurpose cooperatives. Also we will distinguish among cooperatives that only handle one
product and those that handle multiple product.
•
•
•
Economic activities
- single product
- multiple products
Social activities
Political activities
This is an important classification, particularly as we expect a distinction with in the EU
between north (relatively more specialized cooperatives), south and east (relatively more
multipurpose cooperatives).
In the CEECs of the European Union producer groups dominate the pattern of collective action
among farmers. Groups are mostly small in size 10-200 members and specialize in marketing
one or few commodities (Hungary data). Some of the “agricultural cooperatives” (successor
organizations of privatized, former socialist collectives) have become “multi-purpose” in that
they have taken up other tasks than organizing production like for example machinery services,
bargaining rental prices on the land market, marketing and warehousing, financial services etc.
In Austria and Germany multi-purpose cooperatives exist, the so-called Raiffeisen Warehouses.
They are multi-purpose cooperatives organized over several tiers across regions. They perform
multiple tasks like marketing products of their members, milling, oil pressing, warehousing,
financial services, machinery repairs leasing and rental, as well as extension services. In the year
2010, more than 1600 Raiffeisen warehouses existed in Germany. In Austria about 150 of such
warehouses existed. In East Germany about 1050 agricultural cooperatives (successor
organizations of privatized, former socialist collectives) existed (DGRV 2010).
4. A classification based on the position and function of the coop/PO in the food chain.
•
•
•
•
•
•
•
•
•
providing a market (e.g. auction cooperative)
collective bargaining (e.g. bargaining association)
collecting farm products (including transport and storage)
primary processing (producing intermediary products for the food industry)
secondary processing (producing final consumer products)
marketing commodities (bulk products; private label products)
marketing branded products
wholesaling (this implies the coop is selling member products and other products, in
order to supply a full assortment to the retail)
retailing (i.e. directly selling to consumers)
This classification is important as a different position in the food supply chain may have a
different effect on the most-efficient size (economies of scope and scale), the internal
governance (role of board vis-a-vis professional managers), the equity capital needed, and the
relationship with (major) supply chain customers.
In our project the emphasis is on marketing cooperatives / POs and on food products. For the
description of cooperatives in particular countries we use a classification that includes other
cooperatives, to get a good overview of the importance of cooperatives in the agricultural
20
industry in that country. Also, there may be many links between marketing and other
cooperatives (for instance, a supply cooperative may have an agreement with a marketing
cooperative to provide particular inputs to the farmers that are members of both coops).
Finally, there may be other linkages between different cooperatives. Having a network of
collaborating cooperatives can be considered as a strategic asset that can strengthen the
competitiveness of a particular sector or region (and may reduce the need for policy support; or
may lead to combined efforts to lobby for supportive policies). See for instance the article by
Karantinis (2007) on the network relations among Danish cooperatives
5. A classification based on the types of members:
•
•
primary cooperative / PO
secondary or federated cooperative / association of POs
Secondary cooperatives are more likely to combine economic functions with lobbying functions,
which is relevant from a supporting policies perspective. In the fresh fruits and vegetables
industry associations of POs (so-called APOs) are newly appearing. This development is actively
supported by the EU, as many POs are too small to pose any countervailing power vis-a-vis large
retailers.
6. A classification based on geographical scope of the membership.
We follow the classification by Cropp and Ingalsbe (1989):
•
•
•
•
•
Local (e.g. municipality)
Regional (e.g. Province, State or Department)
Interregional
National
Transnational
A classification according to geographical scope can be relevant from the perspective of policy
makers that would like to support cooperatives. Public authorities may want to provide support
to cooperatives in their particular jurisdiction.
7. A classification based on the financial/ownership structure.
We follow the classification by Nilsson (1999):
•
•
•
•
•
traditional cooperatives
participation cooperative
cooperative with subsidiaries
proportional tradable share cooperative (or new generation coop)
PLC cooperative
A financial/ownership typology is important as many cooperatives are introducing new tools in
order to attract additional equity capital. The latter is needed for (international) growth,
investments in R&D, and investments in risky marketing activities like establishing consumer
brands.
21
Table 1. Financial structures of cooperatives
Type of Equity Capital
Providers of Equity
Capital
NonMembers
members
X
X
Collective
Individual
X
X
X
X
X
X
X
X
X
X
6. Traditional cooperative
7. Participation share
cooperative
8. Cooperative with
subsidiaries
9. Proportional tradable share
cooperative
10. PLC cooperative
Source: Nilsson, 1999.
X
X
8. A classification based on legal form:
•
•
•
•
•
•
association
cooperative
partnership
limited liability company (Ltd, BV, SARL., GmbH, SL, etc.)
corporation (Plc., NV, AG, SA, etc.)
other form
The legal form of the cooperative/PO can differ substantially according to differences in national
legislation. In addition, producer organisations under the CMO regulation for fruits and
vegetables may take up any legal form. Still, from a policy-making perspective it is important to
know for each country and each sector what is the dominant legal form. Also, from an EU
perspective, it is interesting to know whether there are substantial differences among member
states in the dominant legal form for coops/POs.
For example in the CEECs of the European Union farmers are known to be reluctant to call the
form in which they cooperate “cooperative”. Most cooperative organizations are not registered
as cooperatives but rather take the legal form of a limited liability company, association or other
(Gardner and Lermann, 2006; Banaszak, 2008). In Poland for example only 2% of the marketing
associations of producers are registered as cooperatives (Banaszak 2008). Like in other Central
and Eastern European Countries they are officially called producer groups, producer
organization, or association of producers (Ramanauskas et al., 2007).
22
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